A Free-Market Energy Blog

Economist Demotes Economics in CO2 Tax Debate

By Robert Bradley Jr. -- November 1, 2018

“‘Whether to do something or nothing’ is quite a retreat from the basic economic principle of realistically comparing costs and benefits. Washington States’ carbon tax proposal is all cost and no benefit. New administrative programs and higher across-the-board energy prices cannot be balanced by virtue signalling.”

“One can only hope that economists would put their game face on and do real analysis–and tell their funders that the right answer is better than the politically correct wrong answer.”

A recent letter-to-the-editor in the Wall Street Journal, “Debating Washington Carbon Tax Initiative,” made a number of points that invite further consideration. The subtitle of the piece was: “The real question in front of Washington voters is whether to do something, or nothing, about the risks of climate change.”

Your editorial “Washington’s Carbon Tax: Take Two” (Oct. 22) points out that some emissions sources are exempted by Washington’s carbon-fee ballot initiative and asks: For those worried about climate change, why tolerate exceptions?

Energy intensive and trade-exposed businesses were excluded because they might have fled the state and brought their emissions elsewhere.

Comment: Short of a federal tax, any state that imposes a carbon tax penalizes its businesses and citizens versus other states that do not have such a levy. A “border adjustment” to penalize free-rider states (akin to a tariff at the international border) is not permissible under the interstate commerce clause. This makes non-federal tax schemes problematic in terms of equity and fairness considerations out of the gate–and one can only imagine what future revisions will add to the complexity of the program.

And there are more exemptions ….

Imposing the carbon fee on the state’s coal plant that is shutting down by 2025 would have violated a previous commitment to the owners of the plant, its workers, and the surrounding community.

Comment: This carve-out to protect “the owners of the plant, its workers, and the surrounding community” suggests just how negative the carbon tax is for citizens and the economy as a whole.

Finally, for dispersed sources of emissions, such as emissions from agricultural lands, a carbon fee isn’t the right policy tool because monitoring and enforcement would be overly burdensome.

Comment: Think lobbyists, not save-the-world environmentalists and politicians. Again, note the winners and losers of Washington State’s tax–and for what (read on)?

It is correct that like any other serious policy that reduces greenhouse gas emissions, a carbon tax would raise energy costs and, by itself, have only minimal effects on global emissions.

Comment: This begs the question: what are the costs relative to the benefits. In fact, a carbon tax significantly increases energy prices for consumers who have little-to-no option to opt out or otherwise avoid the pain. Lower-income consumers are hurt the most. And the effects on global emissions are not “minimal” but infinitesimal.

And the effect on global climate change? Don’t even ask–Resources for the Future, which provides a calculator of carbon taxes on energy costs, does not even dare compute the effect on global warming or associated sea level rise.

But state-level policy can spur action in other states and at the federal level and thus lead to larger emissions reductions.

Comment: This “momentum” argument begs the question of whether what is being pursued is even worth pursuing. In the Trump era, where the Paris Agreement is being shaken to its roots. US-side action will prove futile in the years and decades ahead.

Meanwhile, the debate will shift to negative emissions and adaptation as the “problem” becomes more intractable.

Economists have long supported carbon taxes as the most cost-effective way to reduce emissions.

Comment: Emissions as in “pollution”? Is carbon dioxide a pollutant? The relative merits between carbon taxes, cap-and-trade, and command-and-control mean little is the regulatory program is uncalled for and the political choice is not either/or but more of everything. “Greater speed to the wrong destination is not a virtue.”

When they vote on Initiative 1631, the real question in front of Washington voters is whether to do something, or nothing, about the risks of climate change.

Comment: “Whether to do something or nothing” is quite a retreat from the basic economic principle of realistically comparing costs and benefits. Washington States’ carbon tax proposal is all cost and no benefit. New administrative programs and higher across-the-board energy prices cannot be balanced by virtue signalling.

One can only hope that economists would put their game face on and do real analysis–and tell their funders that the right answer is better than the politically correct wrong answer.

3 Comments

The argument that it’s a tax or nothing assumes nothing means nothing. In fact ‘nothing’ IS something in the actions of men and women acting in their own best interest…i.e. a free market. Time and again, the free market beats statist intervention hands down (in this case by reducing emissions faster than interventionist policy, some of which actually increase emissions). Carbon tax most cost effective means? Not by a long shot, if the universe of options is correctly defined.

I followed the link in the article about “negative emissions” to your paper in IER: “Negative” Emissions: The Emperor’s New Clothes.

Since that article, the National Academies published a 368-page study about negative emissions technologies (NETs) whose coverage included that of the Hanson promoted Direct Air Capture (DAC) technologies (among others). This report put the cost per captured metric ton from DAC at $600. But some NETs were around $20. One of these NETs is soil sequestration of carbon. It appears that carbon is severely depleted in soils; causing potentially massive food security issues in the near future. Depending on what scientific source you want to cite, soil sequestering is capable of handling “excess” atmospheric carbon up to 100%.

However, the study stated that affordable carbon sequestration constitutes a “moral hazard” by “by reducing humanity’s will to cut emissions in the near term.”

The study went on to propose a NET research agenda in the range of tens of Billions of Dollars. This is on top of all the other costs for renewables and “beneficial electrification.

My question is this: What about the “moral hazard” that all of the costs for preventing na ostensible catastrophe from excess atmospheric carbon are unnecessary; especially if there is a potentially larger catastrophe looming in the form of mass starvation which is relatively being ignored?

Thanks for the latest on this Mark. Yes, as Marlo Lewis and others emphasize in the climate debate, there are risks of climate policy, not only climate itself. Government intervention in the name of climate change upends voluntary market decision-making in favor of whatever the politicians and bureaucrats decide is “best.’ And that is scary …..